The Bank of New York Mellon Corp. emerged as a central player in the federal government's financial rescue plan Tuesday, when it was named sole custodian for up to $700 billion in securities.
In addition, BNY Mellon became one of the first major banks to participate in the Treasury Department's plan to buy up to $250 billion worth of preferred stock in thousands of financial institutions, the agency said. In BNY Mellon's case, the Treasury will purchase $3 billion in preferred stock and warrants.
Both developments are part of the governments' rapidly unfolding actions to spur lending and unfreeze credit markets.
Effective immediately, the government contract means BNY Mellon keeps the records and provides accounting work for the $250 billion in preferred shares purchased by the Treasury plus about $450 billion in securities to be purchased later.
BNY Mellon will manage the auctions of those $450 billion in troubled securities that the Treasury will purchase from financial institutions to bolster their balance sheets and restore their faith in lending to one another. The government will sell the securities later, presumably at a profit.
"It makes you feel better about BNY Mellon's position in the world and the confidence the government has in them to be named as the main servicer," said Andrew Marquardt, senior analyst at Fox-Pitt Kelton, New York.
The dollar value of the contract was not disclosed, but Marquardt believed it would amount to "a modest positive" for BNY Mellon, which is headquartered in New York and has major operations in Pittsburgh, where it employs 6,700. The agreement lasts three years, with a government option to extend it four more, Treasury spokeswoman Jennifer Zuccarelli said.
BNY Mellon is the world's largest investment custodian, administering more than $23 trillion in assets. It outbid 70 institutions for the securities work.
Some of the work for the Treasury might be done in Pittsburgh, but it was premature to say, BNY Mellon spokesman Ron Gruendl said.
Other institutions to sign onto the Treasury's plan to buy their preferred stock included Citigroup, JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs. Banks and savings institutions have until end of day Nov. 14 to sign on.
There are strings attached. Those selling shares to the Treasury must agree to limit compensation for CEOs, chief financial officers and the three next-highest-paid officers. Standards so far include ending pay that encourages strategies that endanger the bank, and forfeiting incentive pay later found based on inaccurate information.
Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy ones that didn't need government capital to go first to remove the impression a bank's participation means it needed a bailout.
"There's no stigma attached. This is for the greater good," Marquardt said. "It's part of the restoration of credibility and confidence in the financial system."
None of the biggest banks with Pittsburgh branches said they were signing on to the plan yet.
Spokesmen for PNC Financial Services Group, National City Corp. and Huntington Bancshares said it is too early to comment without seeing all the details. Citizens Financial Group is not eligible to participate, said a spokesman for the bank, a subsidiary of the Royal Bank of Scotland.
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